SAA board member resignations might just benefit airline

THE dramatic walkout by most of the South African Airways (SAA) board members last week may do more good than harm. It might make public the state-owned enterprise’s dire financial situation. Further, it might bring to the fore the critical question of its strategic role.

The resignations have forced the government to act, and not at its own ponderous pace. Already a newly constituted board has been announced ahead of the annual general meeting, scheduled for October 15. The walkout will have intensified negotiations between the Department of Public Enterprises and the Treasury for financial support for the airline.

This support may take the form of a capital injection and/or letters of guarantee to ensure the business can continue to trade and pursue its strategy of expansion in Africa, Latin America and Asia.

It could be argued that SAA is not a business. Rather, it is a tool of the government which has frustrated successive management teams, turnaround specialists and boards.

Media reports on the airline over the past 13 years show a thematic similarity: dramatic management changes, board purges, bail-outs, losses and strategy revisions.

Which has to beg the question: what is so fundamentally wrong with SAA that no amount of money or management expertise is able to fix it?

The mandate of the national carrier has changed as often as the political needs of the country. It may be that the arguments for a national carrier are equal parts political vanity and strategic necessity.

The airline is designed to fail as a business. It is not able to make decisions — be they on new routes, route termination, job freezes, retrenchments, or aircraft acquisition — on a purely commercial basis. It needs the government to approve its decisions.

SAA has always had a weak balance sheet, which is why it has been on a drip feed of guarantees and bail-outs. But it has only been given enough to keep it alive and not to let it thrive.

The airline should be free to seek out profitable routes and to abandon those on which it does not make sense to compete. It should get into the habit of making operating profits that it can use to build its balance sheet.

The snag is that the government’s objectives are not commercial, but political — yet it still demands the airline is profitable.

The government’s agenda to boost regional integration through connectivity and its hostility to retrenchments while it stays fixated on job creation hogtie management.

The SAA operates in a millieu that cannot be ignored. Aviation globally has undergone radical changes in the past 15 years and SA has not been untouched. These include the emergence of low-cost carriers, a flood of new competitors in the post-apartheid years and the aggressive growth of the Gulf carriers that have stolen market share.

The largest cost item for airlines, fuel, has been on a one-way trajectory since the end of the 1990s. Oil prices have increased fivefold from about $16 a barrel to about $92 a barrel, having peaked at $147 in 2008.

Also, SAA competes against two other state-owned airlines; its subsidiary, the low-cost Mango, and regional carrier South African Express. It is time for the government to be honest and to make bold decisions. The R5bn that is being negotiated to keep SAA operating is a modest start.

The debate over the need for a national carrier is moot as it already exists. Privatising a loss-making airline in a market with an industry’s net profit margin at 0,5% is fantasy.

Quite simply money is needed. SAA needs new aircraft to be able to compete against the ambitious Kenya Airways, which has a much more favourable geography than SAA, and the well-capitalised and expansionary Ethiopian Airlines, which also has geographic advantages.

The new board, hand-picked by Minister of Public Enterprises Malusi Gigaba for its skills and experience with SAA must act to arrest the decline of the brand and fight for the airline to be adequately resourced. Pressure will be immense to produce a strategy and to communicate a vision for the airline.

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THE dramatic walkout by most of the South African Airways (SAA) board members last week may do more good than harm. It might make public the state-owned enterprise’s dire financial situation. Further, it might bring to the fore the critical question of its strategic role.

The resignations have forced the government to act, and not at its own ponderous pace. Already a newly constituted board has been announced ahead of the annual general meeting, scheduled for October 15. The walkout will have intensified negotiations between the Department of Public Enterprises and the Treasury for financial support for the airline.

This support may take the form of a capital injection and/or letters of guarantee to ensure the business can continue to trade and pursue its strategy of expansion in Africa, Latin America and Asia.

It could be argued that SAA is not a business. Rather, it is a tool of the government which has frustrated successive management teams, turnaround specialists and boards.

Media reports on the airline over the past 13 years show a thematic similarity: dramatic management changes, board purges, bail-outs, losses and strategy revisions.

Which has to beg the question: what is so fundamentally wrong with SAA that no amount of money or management expertise is able to fix it?

The mandate of the national carrier has changed as often as the political needs of the country. It may be that the arguments for a national carrier are equal parts political vanity and strategic necessity.

The airline is designed to fail as a business. It is not able to make decisions — be they on new routes, route termination, job freezes, retrenchments, or aircraft acquisition — on a purely commercial basis. It needs the government to approve its decisions.

SAA has always had a weak balance sheet, which is why it has been on a drip feed of guarantees and bail-outs. But it has only been given enough to keep it alive and not to let it thrive.

The airline should be free to seek out profitable routes and to abandon those on which it does not make sense to compete. It should get into the habit of making operating profits that it can use to build its balance sheet.

The snag is that the government’s objectives are not commercial, but political — yet it still demands the airline is profitable.

The government’s agenda to boost regional integration through connectivity and its hostility to retrenchments while it stays fixated on job creation hogtie management.

The SAA operates in a millieu that cannot be ignored. Aviation globally has undergone radical changes in the past 15 years and SA has not been untouched. These include the emergence of low-cost carriers, a flood of new competitors in the post-apartheid years and the aggressive growth of the Gulf carriers that have stolen market share.

The largest cost item for airlines, fuel, has been on a one-way trajectory since the end of the 1990s. Oil prices have increased fivefold from about $16 a barrel to about $92 a barrel, having peaked at $147 in 2008.

Also, SAA competes against two other state-owned airlines; its subsidiary, the low-cost Mango, and regional carrier South African Express. It is time for the government to be honest and to make bold decisions. The R5bn that is being negotiated to keep SAA operating is a modest start.

The debate over the need for a national carrier is moot as it already exists. Privatising a loss-making airline in a market with an industry’s net profit margin at 0,5% is fantasy.

Quite simply money is needed. SAA needs new aircraft to be able to compete against the ambitious Kenya Airways, which has a much more favourable geography than SAA, and the well-capitalised and expansionary Ethiopian Airlines, which also has geographic advantages.

The new board, hand-picked by Minister of Public Enterprises Malusi Gigaba for its skills and experience with SAA must act to arrest the decline of the brand and fight for the airline to be adequately resourced. Pressure will be immense to produce a strategy and to communicate a vision for the airline.

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